The stimulus, the New Deal and the bottom line

Conservatives in Washington have been questioning the value of President Obama’s stimulus package.

Part of their discomfort is the amount of pork packed into the bill. Fair enough. But there’s also a deeper question about the value of massive government interventions.

The Republican meme is that the New Deal (Mr. Obama’s model) wasn’t effective and may have even been counterproductive. Here’s conservative columnist George Will:

“Before we go into a new New Deal,” he pronounced, “can we just acknowledge that the first New Deal didn’t work?

The Heritage Foundation has also fostered this idea, concluding, “First, the reality is that FDR’s New Deal did not help the U.S. recover from the Great Depression but simply made things worse.”

It’s worth pointing out that the vast majority of economists disagree. Even many centrist Republicans believe that government spending can and should be used to stimulate economic activity.

But I think conservatives also overlook another reality.

If the New Deal wasn’t the silver bullet that ended the Great Depression, it was certainly a safety net that kept hundreds of thousands of Americans from abject, Third World poverty.

By the mid-1930s, our society was on the verge of collapse. A quarter of the nation’s workers were unemployed, nearly four times the current level.

Whole states were depopulated by drought and economic devastation. Unrest and violence were increasingly common, as “Hoovervilles” sprang up around the country.

By putting people to work and establishing a new level of social security, the government created a kind of backstop. “Things are bad,” was the message, “but they won’t get any worse.”

If the current economic crisis continues to worsen, conservatives may be forced to confront this question again.

Is limited government still the correct approach when people are starving?

And if government stimulus isn’t a cure-all, might it not be a necessary tool for maintaining some level of economic stability, until the private sector finds its legs again?

Yes, there are risks to spending all that borrowed money. And yes, at some level higher taxes do stifle economic activity.

But without a flood of “artificial” spending, we might see many irreplaceable institutions — from our oldest banks to our best hospitals to our automobile industry — simply disappear.

Conservatives insist that we must trust the marketplace to sort all this out. But as millions of jobs continue to circle the drain, that argument might not play outside the think-tanks and the talk-radio circuit.

Tags: economy